Sterne Agee Initiates Coverage On Bank Of America At Neutral

Sterne Agee is initiating coverage of Bank of America Corp.

with a NEUTRAL Rating and $15 PT. Its P/E/tangible book value derived price target implies about 1.1x Sterne's estimated 2011 tangible book value, 8-9x 2012 estimate, and about 7-8x normalized earnings estimate of approximately $2.00-$2.25 per share. BAC is a low cost producer with unmatched national retail and small business banking franchise. Following the acquisition of LaSalle Bank in Chicago, the company solidified its best-in-class national consumer distribution platform covering 80% of the U.S. population, including 20% share of the 25 fastest-growing large MSAs. The pending rule changes tied to Dodd-Frank, higher than expected supervisory capital levels, and risk tied to the legacy mortgage and servicer businesses are the most significant risks confronting BAC at this time. Mortgage repurchase risk is primarily tied to an estimated $372B in outstanding loans with private label/monocline/whole loan investors. While loss experience is limited, BAC has estimated potential loss of $7-$10B above existing accruals. BAC is trading lower at $13.59